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Hi everyone,
Just been doing the question in the topic title and I’m quite miffed at the first workings. I’m using BPP textbooks.
The leasehold property has a value of $25,200 year ending 31st March 2009. No depreciation has been charged.
For this year there is a revaluation and the property is now valued at $24,900.
According to my textbook:
“After reducing an asset to its recoverable amount, the depreciation charge on the asset should then be based on its new carrying amount…..”
So, I thought you simply work out the impairment which is $25,200 – $24,900 = $300. THEN I worked out the depreciation, which happened to be $24,900 / 14 = $1,779.
HOWEVER….
The model answer worked out the depreciation first and looked like this:
$25,200 / 14 = $1,800
$25,200 – $1,800 = $23,400
$23,400 – $24,900 = $1,500 GAIN on the value of the property.Can anyone quickly confirm – is the correct practice to work out the impairment before depreciation and THEN charge the depreciation on the new carrying amount (as the textbook suggests) OR is it to work out the depreciation on the current carrying value AND THEN work out impairment / gain (as the study guide suggests).
Much appreciated!
I think the answer given is correct (when you depreciate firstly, and then revalue).
At the year end 12 months of the year were gone, so depreciation is charged – you accrue depreciation charge evenly through the year (month by month for example).
Then (at the year end) you come with a property value of $23,400. You revalue AT THIS MOMENT and you find out that the value is higher then in your books – thus you have revaluation. You haven’t known about this revaluation at the start of the year.Hope this helps.
What date was the property revalued? If it was revalued at the start of the year, then revalue before calculating depreciation.
If the revaluation was at the end of the year, then depreciate before you revalue
Dates are SO important
What the text book is trying to say is that, future depreciations are calculated on the new revalued amount (you don’t continue depreciating at the same rate as before). In this question there is the old depreciation rate which is charged before the revaluation, and then if you had been asked to calculate the following years depreciation rate, it would be based on the new amount.
I’ve yet to come across an F7 question where the revaluation takes place at any other time than the year end, so any depreciation is always at the old rate and applied before you calculate the gain/loss of the revaluation.
Did you watch free lecture?
https://opentuition.com/acca/f7/acca-f7-june-2009-question-2-pricewell/
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